Markets at Major Inflection Point

The major stock indexes are nearing major price and time pivots and could breakout/breakdown to a significant move that could decide the next election, notes Jeff Greenblatt.

The next week could be the most pivotal time of the year. Since we are coming to a year out from the election, what happens in the next couple of weeks could very well decide who wins the presidency next year. If you believe it’s always about the economy, this is for you. It’s September and its inflection time. It’s time for the market to break out of its recent tight range as well as the stagnant action since May.

In summary, the top hit in July on the Google earnings at day 987 (Fibonacci) from the 2015 bottom. There is a standing low at 617 weeks from the first peak in early October 2007 and a failed attempt to break down on week 618, which just also happens to be the Dow low. That low came in on day 161from the late December bottom. The tech indices topped three weeks later at the end of October 2007. If you look at the recent NDX and SPX high, one is 8027 and the other is 3027 (see chart below). Sept. 4-5 are the 27-28-day window off the high. We are right in the teeth of this window and depending on what happens in the next few days, it could have a long-lasting impact. Since the economy usually lags the stock market by eight to10 months, the outcome of the next week could be hitting Main Street just about the time of the national conventions next summer.

What usually happens in early September as many market participants come back from August holiday is a feeling out process. People want to get a feel for where the dust is going to settle before putting down their markers in what is traditionally the statistical graveyard for stocks in the course of the year. Thus far we know Tuesday was rough and Wednesday was a recovery day. Nothing has been decided yet even as markets are sitting at the top of a congestion zone they’ve been in for a whole month.

The news event that seemingly caused the market to pop on Wednesday was based on a report from Hong Kong that stated the unpopular extradition bill that started the whole protest movement has been completely taken off the table. The Hang Seng rose roughly 4% on this news. Here’s the challenge, this wasn’t the only issue the protesters were fighting against. We’ll find out this weekend if this news takes the wind out of the sails for the protest movement. For those following this story very closely, it may very well turn out to be markets moved on the hope it will satisfy the protesters. In true bear markets, stocks always rise on a slope of hope. It won’t take very long to find out if this is the case. Remember, the ultimate protest is over Mainland China exhibiting control over Hong Kong, and it was Communist China who pushed the extradition rule and who usually gets its way. Also, remember that while President Trump battles China over trade, he has been conspicuous in his lack of support for Hong Kong and his unwillingness to chastise regimes.

Markets also got off lightly with the hurricane. If the full power of the storm which everyone viewed over the weekend slammed into Florida, pundits were speculating the reinsurance business would have been dealing with a financial catastrophe. With Dorian only hugging the coast, it appears the east coast could dodge a major bullet and only suffer relatively minor damage.

Where markets might not get so lucky is the situation in the UK where the political situation has turned to complete uncertainty. According to a Bloomberg story the UK’s Super-Rich Prepare to Flee from Corbyn Rule, Not Brexit. Nobody knows what is going to happen and the very wealthy are more concerned about a potential Jeremy Corbyn government then any Brexit outcome simply because he’s promised to spike taxes. But this outcome won’t be determined until October at the soonest. Additionally, Corbyn has pledged to undo the privatization of certain industries such has energy, water, railways and Royal Mail. These industries would be nationalized the way they were prior to the Prime Minister Margaret Thatcher era and investors would be compensated according to a stock’s book value, not market value.

For our trading lesson, our newest work is uncovering the science of breakouts and breakdowns. This represents a new contribution to the field of technical analysis. Like you, I am a fan as are millions of traders who have enjoyed William O’Neil’s breakouts via the cup and handle pattern. What makes this different is we use our Kairos method of price and time squaring to uncover the key breakout or breakdown bar just as it accelerates or goes over the cliff. Here is an example on an intraday timeframe of Cirrus Logic Inc. (CRUS). Cirrus made a high at $53.68 and it squares out at 67 bars where it never goes lower again.

What differentiates this from our earlier square out work is the Kairos bar is neither the high nor low. It’s the absolute bar where the final direction of the move is decided. The advantage to traders is the ability to recognize this with a very low risk/reward ratio. This solves the problem many momentum traders have. They buy the breakout above resistance and many times that breakout doesn’t sustain. In this case, if you bought the wide range bar on the gap up, where would you put your stop loss? The vibrational system is easy to recognize and lets you in for the smallest possible risk with the maximum potential reward. While this is not the classic cup and handle, the low volume consolidation after a move up, which turns out to be the pause before the next breakout is very similar.